Europe’s Energy Crisis Is About to Get Worse as Winter Arrives

Bloomberg — The energy prices in Europe have been breaking records since before winter even kicks in. This is a warning sign for the future of Europe as it struggles with the coronavirus resurgence. This could cause tensions between countries and force them to take measures to safeguard supplies. It could also mean that households are asked to reduce their energy use or plan for rolling blackouts.
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The trouble is that any fix is unlikely to come from the supply side any time soon, with exporters Russia piping only what it has to and Qatar saying it’s producing what it can. The energy industry is instead faced with relying on “demand destruction,” said Fabian Roenningen, an analyst at Rysted Energy.

“We have seen it over the last couple of months already, and in many industries, it will most likely continue and even increase,” he said from Oslo. “It’s just not profitable to operate for a lot of the players in the current market conditions.”

This outlook increases the feeling of fear in Europe. This region is once again at the center of the pandemic. Covid-19 case numbers are rising, and there are fears that a new South African variant could be emerging. Some countries are tightening restrictions, and household budgets are getting squeezed due to rampant inflation. Frosty weather can also mean that the lights could go out. Although governments are reluctant to return to lockdown as in Austria, it would reduce power demand.

France, Europe’s second biggest economy, is particularly at risk. The possibility of a chill in January and February is causing concern for the nation’s grid operator. A Nov. 22 news report stated that the availability at French nuclear stations is very low, as the mainstay of France’s power system. This was due to the fact that the pandemic caused delays in the maintenance of certain reactors.

The power prices in France are at their highest level since 2012. This is because of a chill blast that has crept into France. It will be able to hold until Monday, when demand for workdays starts rising.

The grid operator appealed last winter to homes to reduce their energy use at peak hours and initiated demand reduction agreements with manufacturers to help when it got very tight. As a last resort, rolling blackouts lasting two hours in each area would be the next steps. This would all be done before a presidential election.

“If there’s a deep cold snap and there’s no wind, things could become tight given the lesser availability of nuclear plants and the recent closure of dispatchable generation assets using coal,” said Nicolas GoldbergColombus Consulting Paris’ senior energy manager, was interviewed by. “If it’s getting really cold and there’s no wind, it may become a problem.”

France also exports electricity to its neighboring countries. This means that a crisis could have reverberating effects in Britain, Spain, Italy, and Germany. The Monday maximum demand was 80.7 gigawatts, which is far below the record 102Gigawatts set in February 2012.

Due to a sharp rise in natural gas prices, the situation has already become so severe this winter. The fuel is used to heat houses and generate electricity. However, the prices are much lower than normal and they are rapidly running out. If cold weather increases demand, analysts warn that gas stocks could fall to zero.

Rolling blackouts may be possible, said Jeremy Weir chief executive officer at Trafigura Group, a Swiss commodity-trading house, on Nov. 16.

“If the weather gets cold in Europe there’s not going to be an easy supply solution, it’s going to need a demand solution,” said Adam Lewis, partner at trading house Hartree Partners LP.

The supply side will determine what Russia does in the future. Russian President Vladimir Putin said he was ready to help Europe stabilize its market with additional supplies. But despite a recovery in shipments since November’s slump, these shipments still remain low when compared to the same period last year. It is still unknown how much Russian gas Russia will send to Europe in December.

Quicktake: Europe is now dependent upon Putin for gas

The long-awaited start of the Nord Stream 2 pipeline to Germany from Russia would ease the continent’s energy crunch. The project is finished, but has run into regulatory hurdles and it’s unclear when flows will start.

Qatar, the world’s biggest exporter of liquefied natural gas, says it’s already producing gas at full capacity. Due to low production costs, the Gulf country has placed six additional LNG vessels from South Korea in addition to four tanksers it purchased from China.

If the situation becomes really dire, some countries may decide to stop selling natural gas to certain regions. They could also stop gas and electricity flows to each other in an even worse scenario, which would spark political conflict and hit economies.

It has so-called solidarity principles within the European Union that prevent states from blocking power, gas or other exports and are meant to protect another member’s supply of household goods.

The solidarity, though, has never been tested in a wide-scale crisis and grid operators say that they’re allowed to stop or alter power flows through inter-country cables if they have security of supply issues. When the nicknamed “Beast from the East” hit at the end of February 2018, it was quite late into the heating season. This year, it’s likely that a less severe weather event could have a similar impact.

“It shows how exposed Europe’s power system is to the volatility in commodity prices,” said Roenningen in Oslo. “In the short term, there’s not a lot that can be done.”

(Updates with Demand Forecast in 10th Paragraph.

–With assistance from Francois De Beaupuy and Will Mathis.

For more information, contact the story’s author:
Rachel Morison in London at

© 2021 Bloomberg L.P.


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